Origin Energy will delay the closure of Australia’s largest coal-fired power station amid concerns renewable energy isn’t being added fast enough to keep pace with plans to quit fossil fuels.

The utility agreed to a request from the New South Wales government to keep operating part of the 2.9 GW site — which accounts for about a quarter of power demand in Australia’s most populous state — until August 2027. Origin may receive compensation of as much as A$225-million a year from the state to help cover the cost of operations.

Origin had planned to shutter Eraring as early as August 2025 as competition from cheaper solar and wind facilities has eroded profitability. More than 80% of Australia’s coal plants are likely to close by 2035 as a result of weaker earnings, declining reliability, and as states and companies aim to meet decarbonization targets, BloombergNEF said in an October report.

Australia’s grid operator earlier this week flagged risks of shortfalls in the populous southeast has increased as coal-fired plants are phased out and grid and battery storage projects are delayed. A growing population is also boosting demand.

“This agreement supports Eraring to continue to play an important role in maintaining reliable power for businesses and households through a period in which there remains considerable uncertainty about the volume and timing of new renewables, transmission and firming infrastructure coming online,” said Frank Calabria, Origin’s CEO. “Origin does not shy away from the need to exit coal generation as soon as there is sufficient renewable energy, firming and transmission capacity available.”

Under the agreement, Origin will endeavor to generate at least 6 terawatt-hours of power during the 2026 and 2027 financial years, it said. The state will stop compensation after the 2027 financial year and the plant must retire in full by April 2029.

The task of quitting fossil fuels in Australia is being complicated by sluggish development of utility-scale renewable projects to replace the lost coal generation capacity. Investment in large-scale solar and wind fell 55% in 2023 on the prior year, according to BNEF.

Some coal sites are being earmarked for redevelopment to host clean energy infrastructure. AGL Energy plans to build a 500 MW battery at the site of the retired Liddell coal-fired power plant, while Origin intends to in the future carry out a similar project at Eraring.